By Yali N’Diaye
WASHINGTON (MNI) – The U.S. accounting standard setting body is
still collecting comments on its proposal to apply fair value accounting
to all financial instruments, and Federal reserve Chairman Ben Bernanke
said during his Financial Crisis Inquiry Commission hearing Thursday
that it is not the best idea for long-term loans.
That is not to say fair value — also known as mark-to-market —
should be eliminated, he said.
“I think we should do our best to get appropriate market values of
assets” when they don’t have a market price, Bernanke said. “Now this is
a somewhat different issue (when) you’re dealing with long-term credit
in the banking book.”
“I’m in favor of accurate accounting. I think that there are
sometimes problems when markets are very illiquid. The FASB tried to
move in the direction of clarifying how to deal with so-called level 3
assets in illiquid markets.”
“But I’m also very cautious about applying mark-to-market
acocunting to the long-term loans,” he said.
In fact, “I think that mark-to-market accounting at times increased
the procyclicality of the system,” he said, particularly referring to
periods of illiquid markets making asset valuation harder and when there
is no secondary market and appropriate valuation requires a model or
some assumptions.
As to how MTM influenced the financial crisis, he said, “I think it
exacerbated it, somewhat.” With the nature of financial markets being
that asset prices move and and down and then crashe, “We don’t
want to sacrifice accurate valuations to eliminate that issue.”
** Market News International Washington Bureau: 202-371-2121 **
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